IBM and Red Hat announced on Oct. 28 a definitive agreement which involved the acquisition of the world's leading provider of open source cloud software by the multinational informatics technology company.
The agreement involved IBM buying all of the issued and outstanding common shares of Red Hat for $190 per share in cash, for a total value of approximately $34 billion.
With the acquisition, IBM gained access to the best-in-class hybrid cloud system that would later support its clients to their successful move to the cloud.
In its announcement, IBM said that while companies today are already using multiple clouds for their systems, there remain 80 percent of business workloads that have yet to move to the cloud. Businesses that are missing out on the cloud also lose out having data security in a multi-cloud environment and consistent cloud management. IBM and Red Hat together would address this issue by providing hybrid multi-cloud adoption.
The companies would provide clients with cloud-native business applications faster, access to greater portability, and security of data and applications across multiple public and private clouds through Linux, Kubernetes, both multi-cloud and cloud management and automation.
When the acquisition is completed, Red Hat would merge with IBM's Hybrid Cloud team as a separate unit. It would, however, maintain its original headquarters, facilities, brands, and other practices.
Red Hat would still be led by Jim Whitehurst and its present management team. Whitehurst would also join IBM's senior management team and report to Ginni Rometty.
Together, IBM and Red Hat would become a "serious threat" to Amazon and Microsoft, Bloomberg believed. IBM, being an entrenched informatics technology company, would not able to thrive in the highly evolving cloud business if it continues to compete alone. On the other hand, Red Hat is still young to compete by itself with tech giants such as Amazon, Microsoft, Google, Oracle Corp, and other tech empires.
Indeed, IBM's offer has ballooned Red Hat's value at approximately 51 times than its present value, Bloomberg estimated. IBM, on its own, has a market capitalization of $114 billion.
IBM shares have actually declined in the past five years while Red Hat shares have climbed up to 170 percent over the same period according to Reuters.
Reuters noted that acquisition is now becoming a trend for other tech giants to compete with the cloud race.
This year, Microsoft acquired GitHub for $7.5 billion; Boadcom Inc bought CA Inc for $19 billion, and Adobe Inc. bought Marketo for $5 billion.
IBM's biggest rival, Dell Technologies Inc., acquired EMC for $67 billion as early as 2016.
